Building a Legacy - how are you building wealth for you and your family?
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Some people only get to see money come into their account 12 times in a year, but here is the question... How many times does it leave their account?
Before 2020 started, I declared it to be a great year (like most people did), maybe I should have been a little more specific because it gave me no warning of how it would inject greatness into my path. It has been challenging, for the most part, my plans and goals took a 360 turn, but I was determined to remain hopeful, after all, I've come too far to not press on.
I had a conversation with my uncle recently discussing all things from relationships, family, politics, and finance. He said something that really hit me "Some people only get to see money come into their account 12 times in a year, but how many times does it leave their account?." Straight away I took my phone out and knew this was the angle to my legacy-themed post I've been meaning to write. Thanks, Uncle George.
So here is another question - are you the lender or the borrower? Consumerism fuelled by debt is a death wish to healthy financial management, and yet so many people are trapped by their choices (hands up, I used to be one of them). It is important to remind ourselves that our financial problems do not hold us back from being financially free, but rather how we respond to these problems.
We have heard that there is a solution to every problem, and that's true because whether it's seeking professional advice to guide you through the process, books/podcasts, YouTube, or whatever it may be, there are resources available to equip you on your journey towards financial freedom. The difference between achieving and missing the mark is tied to your willingness to commit to the process, and this involves making a sacrifice. Your attitude influences your behaviour, and will ultimately determine your altitude in whatever goals you set (you can tweet that).
Money Saving Tip: Learn to live on your income, not your ifcome.
Generational wealth starts with being financially free. If you are not creating wealth for yourself then what are you going to pass down? We must be in a position to fund our future as opposed to paying for our past. Now I am not saying we must prioritise wealth and chase after money, no, we must never place our security in money or possessions; money is an amplifier of what you value; it is an instrument and not a goal.
Let's take it to the Scriptures - the prosperity message is the Good News, but our understanding of the prosperity message seems to get people divided - Isa. 55:8-9. It's God's will to provide for us and reward us for our hard work and obedience, but we cannot measure or equate our reward to our net worth or bank accounts. Paul was just as rich as King Solomon or Job, Selah [pause and reflect]. 1 Ki. 3:5-14 / Pro. 22:1-2 / Matt. 7:9-11 / Jas. 2:5 / Col. 1:24-29 / Josh. 1:8 / Rev. 2:9.
Unfortunately, some have perverted the prosperity message to pursue their lavish lifestyle as they are not content in life - Matt. 7:15-16 / 1 Tim. 6:3-10; 17-19 / Heb. 13:5, but making money is not sinful; being wealthy is not sinful. These sabotaging beliefs are what cripple people, their outreach, and their credibility. Life is a vapour, and we are all created with a purpose. The inspired Scriptures tell us that true wealth lies in your obedience/stewardship and influence, not your acquisitions. My hope is that we do not abuse or neglect the gifts, resources, tools, or instruments that God has given us to serve others.
You may be at a financial disadvantage, but that does not make you disadvantaged. Forgive yourself of your past money management, and let's learn together how to change the narrative with Michael Donkor, FCA Financial Adviser with over 10 years of experience in the financial industry. Before we get into it, thank you to everyone that posted their questions, not all of them are included so please feel free to connect with Michael, contact details are below.
ZI: Let's get straight into it; what is wealth management, why is it important, and how can we generate wealth?
MD: Wealth management is essentially how you structure your finances in the most tax-efficient way possible. When working with someone in wealth management, what you are ideally hoping to get is a specialist adviser, a qualified individual who advises where best to put your money for the long term to generate wealth.
I don't necessarily think wealth is tied to money, personally for me, it's knowledge. It is understanding where to put your money and building that for the long term to cover all your financial bases. This is important because a lot of us don't tend to think about what our future could look like, so it is unlikely that they are even thinking about what to pass on to the next generation.
Generating wealth takes various forms, that's why I referred to knowledge. It is important we understand what wealth is. The term wealth means having an abundance, so from a financial perspective, it's having an abundance of money. If you are not in a position to have a large amount of money maybe you have knowledge that can be beneficial to you, your family, or others to put them in a better position.
When thinking of building financial wealth, start saving and investing for the long term, but also have other provisions like insurance in place for the what-if scenarios. The what-if scenarios will be tied to your wealth and funerals play a big part. When we get into our late 20's these are the things we need to consider as they are inevitable. You can't brush it under the rug because somebody is liable to pay for it. It will affect you financially, mentally, and emotionally, so you would want to have things in place to soften that blow.
ZI: How do we overcome barriers to wealth and improve our relationship with finance?
MD: Start being honest with yourself when it comes to your relationship with money. We have a lot of people that are comfortable with the idea of spending money, and not tracking it, you hear the phrase "Oh, I'm not going to look in my bank account..." This 'amnesiac-like' mindset shifts you from not being in control over your finances.
We also need to be more realistic and purposeful with our money. Some people are not used to having money as they were raised or grew up poor or with limited finances, and now that they have money, they don't understand what to do with it and never considered forward-thinking with their finances. Their mentality is to get rid of it and enjoy it, and there's the flip side where they are hoarding it, not wanting to invest. This may be a good thing to an extent because it means they will always have emergency funds, but in terms of building wealth, this safety net is not the best decision because inflation is likely to eat into their purchasing power if left in their bank account. [Inflation is the decline of purchasing power of a given currency over time, Investopedia].
You have to get the right balance. It's not about throwing all your money into one basket but putting it into various pots to meet your circumstances or needs. I used to be a saver, scared to spend my money. I never knew how far to take my finances besides keeping it in my bank account, but having the right conversations with the right people made me realise to invest in myself and to have a game plan for how I spend my money.
ZI: Touching on overcoming barriers, how would you describe and address the problem within the Black community when it comes to wealth?
MD: There is a lack of communication and togetherness in the Black community. We become individuals quite early on, and what that does is stop us from building together. If we take a family in the UK for example, we see quite a large part of the Black community leaving homes at an early age to live independently or with their partner, this separates the household, but also the individual acquires more costs.
Within Black families, the average earnings are very low. I think the average earnings for the African household is about £24,000 per year whereas Indian Asian families could look at £266,000 per year. The household earnings are used collectively to build each other up, helping to get on the property ladder, and helping to save for the long term, and that's something that we are not doing as a family. We are too keen to move out as quickly as possible. If we look at the White counterparts, they are doing this a little better, not necessarily being together as in staying at home but they have more generational wealth that they are benefitting from.
Even the "black tax", a term used for Black people giving money to their families. It has received a negative connotation because we are one of the races sending money back home, but that's not entirely true. Other cultures are still practising this, the only difference is they are together, so it doesn't become a burden. But it becomes burdensome within the Black community because we feel like we are doing it by ourselves. So you're earning a reasonable amount of money but then you have a chunk of that money going back home or tied to other family obligations and then you have another large chunk of your money going towards rent and now you're in no position to save, but on top of that, you want to start dabbing, going to Ghana, popping bottles, live a flashy lifestyle. The mentality is messed up so now you're getting hit from both angles.
In finance, a short term is considered 0 - 5 years, and when we talk about the medium term we are stretching it to 5 - 15 years, and the long term looks at 15 years+, so we are not looking far ahead. Look at it this way, are you where you wanted to be 5 years ago? If not, then you must realise that 5 years is a very short timeframe. So we need to think further ahead because what you decide in the next 10 - 15 years will dictate what you should be doing in the upcoming 5 years.
People also tend to shy away from the worst-case scenario, and these are things that can happen and are happening. Our parents haven't been comfortable speaking to us about their finances and traditions play a big part. So if the conversation is not being said, we are not preparing for these things such as funerals. Whereas, other cultures have already had these conversations either with themselves, family, or financial advisers to put things into place.
ZI: Are we heading for a recession, if so, what should we do about it?
MD: Just to be clear we are already in a recession as of December 23, 2020. A recession is two negative quarters consecutively occurring throughout the year. In terms of what we should be doing now, this is almost squeaky bum time, the extra time in football. This is the time when we need to do what we can to stay afloat if we haven't put plans into place. The real question is if this happens again will you be prepared for it? You cannot ignore the worst-case scenario, we are in it now, so analyse your spending habits, your expenses and make the necessary adjustments so you wouldn't have to pay for it later.
ZI: What winning advice would you give when it comes to investing and buying shares?
MD: I'd first say that you must look at companies that you have an interest in. If you are into fashion and you like ASOS, look into ASOS. If you are into cars and you like Volkswagen, then Volkswagen it is, if you're into technology and you like Microsoft, look at Microsoft. Start by looking at the area that you are interested in when picking shares as you will be well-versed with its seasons and interested in related news.
Once you've done that, start looking at the amount you are willing to risk and lose. You need to go into these trades willing to lose all of that money so that you get comfortable with the potential losses. If the answer is a particular number brilliant but if it's zero, then you shouldn't be trading. Once you've assessed your risk tolerance, you can then look at your exit strategy. How much would you like to get out of this return in a short timeframe based on the investment you're looking at?
ZI: What should everyone be doing - give us 5 financial goals to attain to?
MD:
Save for a rainy day, this is your emergency funds, and get into the habit of budgeting start splitting your money into different pots, this allows you to be purposeful with your finances.
Plan for your future - speak to a financial advisor if in a position to do so, but you want to start thinking ahead, think further than 5 years.
Open the conversations about finances with your family so that the "black tax" can be addressed if applicable. This move will put you in a better position to build together. A lot of families in our communities are not able to save so starting these conversations would be a great starting point. I came across research and to recap, it highlighted that for every £1 the White British household holds, Black Caribbean's have 0.20p, Black Africans have 0.10p. The racial wealth gap is real, it doesn't pay to be ignorant and set in 'our ways'.
Be comfortable with taking risks, this is about investing some of your money in different portfolios to generate a return. Be aware that depending on where you put that money you could lose some if not all of that money but you miss every shot you don't take, so you should assess your tolerance level and ideally position yourself so that you are comfortable with taking certain risks.
Learn to be disciplined as this allows you to be consistent. This is very important especially when you look into trading, you want to have a plan and strategy in place.
ZI: If you could summarise everything we've discussed, what would you want people to leave with?
MD: This is bigger than yourself, so financial literacy is really important, don't be scared to ask yourself some questions. What does wealth mean to you? Not everybody wants to be rich, some just want to be comfortable, and so what does being comfortable look like to you? Some people want to have a nice house to live in or want their kids to attend a good school, some would like to travel 4 times a year or have their families taken care of. All of these are tied under the wealth umbrella, but it's different for each individual. Once you can answer this then you should have an idea of how you want to approach things. If not, then consider speaking to a Financial Adviser.
It goes to say that if you have a problem with your taxes, you would eventually speak with an Accountant, if you have a problem with your contracts, you will look for a Solicitor because you know they are experts in their field. So, if you are unsure of what to do with your finances, you need to speak with a Financial Adviser. One thing you have to remember is that Financial Advice is a regulated industry, so you have to be qualified to give financial advice, you have to be qualified to be an Accountant, you have to be qualified to be a Solicitor. The banking system is a system in place to safeguard your money, it's not built for you to generate wealth so you have to think about it from that perspective.
With the great information provided, I hope you are inspired to plan your financial future. It doesn't have to be as daunting as it may look, and you do not need to forfeit your peace. As long as you take a step forward, you are sure to reach your goal. There are amazing money management apps and online sites for you to build your financial literacy and planning - Google is your friend, so there are no excuses. But if you like to plan everything with pen and paper, then we have a gift for you.
Download our FREE printable, Zenys Inspires Financial Planner, an 8-page pack that includes: affirmations/goal setting, budgeting templates, expense tracker plus so much more to help you achieve your financial success. Whatever you do, don't procrastinate! Begin your financial self-love journey with our bonus edition available at our store, click here for your purchase.
Money Saving Tip: It is far easier to stay out of debt than to get out of debt.
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ABOUT MICHAEL G. DONKOR
Favourite Quote: Whether you think you can, or you think you can’t – you’re right. - Henry Ford.
With more than 10 years in the role, Michael thoroughly enjoys working holistically with individuals and their families, creating tailored solutions to optimise savings and protect both their health and wealth over the long term - in short, aiming to achieve their financial freedom. Michael also supports small and medium-sized businesses with pensions, employee benefits, mortgages and tax-efficient solutions.
For your FREE consultation to discuss your unique plan that will add value to your financial well-being, contact Michael at www.michaelgdonkor.com | LinkedIn: Michael Donkor | michael.donkor@alexanderhousefp.co.uk | +44 (0)7444 422 039
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Be encouraged and be blessed.
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